The effect of phasing out BPS on your farming business

Farming subsidies have been around since just after WWII. They were initially introduced to safeguard food supply and minimise fluctuating prices following the war.

There have been many changes over this time, moving away from a production-based subsidy to the area based Basic Payment Scheme (BPS) which replaced the Single Payment Scheme in 2015.

BPS will be fully phased out by 2027. For 2025, BPS claims will be capped at £7,200 - a more rapid reduction in income than was originally expected. This cap represents approximately a quarter of the average claim made in 2023, highlighting the significant impact on recipients.

The BPS has played a critical role in farm finances, contributing more than half of the average Farm Business Income (FBI) for cereal, general cropping, grazing livestock, and mixed farms. However, its withdrawal will significantly impact farming businesses, with the Country Landowners Association (CLA) estimating that it will remove around £20,000 from the average farm’s income.

Some farm types, particularly Less Favoured Area (LFA) grazing livestock farms, have been heavily reliant on BPS to offset financial losses. Between 2019/20 and 2021/22, BPS accounted for 76–79% of total farm income for these businesses, highlighting their dependence on the scheme.

In 2022, the successor to BPS was announced as the Environmental Land Management Scheme (ELMS), designed to provide more targeted support. ELMS is divided into three components:

• Sustainable Farming Incentive (SFI) – supporting environmentally sustainable farming practices.
• Countryside Stewardship (CS) – funding projects to enhance biodiversity and water quality.
• Landscape Recovery – supporting long-term environmental restoration.

Currently, there are around 40,000 agreements in countryside and environmental stewardship schemes, covering approximately one-third of England’s agricultural land. Plans are in place to expand this to 70,000 agreements by 2028, increasing coverage to 70%.

Per DEFRA, the average income for a dairy business between 21/22 and 22/23 was £133,600 and direct payments accounted for 17% of this income. Since 22/23, milk prices have increased, and subsidies reduced so this percentage would have fallen.

In some of the 2024/25 accounts that we have seen, the BPS income equates to about 1% of total income.

With the 2025 BPS payment capped at £7,200, this equates to 16,000 litres of milk at a rate of 45 pence per litre – the equivalent to less than 50 litres per day. While this reduction in income, is significant, at this level, efficiencies and improvements to the dairy management should enable the business to minimise the financial impact.

The average income for arable businesses was £123,300 between 21/22 and 22/23, with direct payments accounting for 32% of this figure, so around £40,000.

In the 2024/25 accounts this has fallen to below 10% of income in many cases, ignoring any SFI or stewardship scheme income and therefore has had a huge impact on income.

The 2025 BPS cap, combined with the prevention of new SFI claims, will have a significant impact on many arable farms. With the £7,200 cap equating to 40 tonnes of crop at £180 per tonne, farms would need to achieve an additional 0.2t/ha yield on 200 hectares to offset the financial shortfall.

During the 2021/22 to 2022/23 period, direct payments accounted for 67% of income for lowland livestock farms and 68% for those in Less Favoured Areas (LFAs). Average farm incomes stood at £23,500 for lowland farms and £36,900 for LFAs, with these subsidies making up two-thirds of total earnings—playing a crucial role in farming profitability.

By 2024/25, direct payments have significantly declined, now representing around 10% of total farm income. With the 2025 BPS cap set at £7,200, this equates to approximately:

• Three fat bullocks at £2,400 each,
• Four store cattle at £1,800 each, or
• 40 fat lambs at £180 each.

The profit margins on these livestock will vary depending on whether they are home-grown or purchased, further influencing financial sustainability.

As intensive pig and poultry farms are run on small areas of land, the area-based BPS was negligible for these businesses historically. As a result, the capping has not affected their income.

Demand for eggs and poultry meat has continued to grow and prices have been very good as a result.

The recent increase in milk and livestock values will help offset some of the lost BPS payments. However, the capping of BPS for 2025 and the shutting of the door on SFI, for now, will add extra financial challenges to farming businesses. In addition, for businesses purchasing animals for finishing, the need for additional capital will be a significant challenge. Securing stock requires upfront investment, with funds tied up in livestock until they are ready for sale.

Countryside Stewardship grants and existing SFI agreements will help bridge the financial gap left by the reduction in BPS payments. Additionally, many farms are already adopting improved management practices, which will further support income generation and offset subsidy losses.

Capital grants have reopened, though with capped amounts, providing valuable support for the ongoing investments required in farming businesses.

Effective cashflow management—through budgeting, monitoring, and adjustments—remains essential for running a farm efficiently both now and in the future. Maximising the use of available support and grants will help ensure farms have the necessary resources to remain financially resilient.